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Frequently asked questions - June

Friday, 21 June 2013   (2 Comments)
Posted by: Author: Dieter van der Walt
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Author: Dieter van der Walt (SAIT technical)

1. VAT and Income Tax Implications pertaining to Property


Our client entered into an agreement to sell their property. The original conditions relating to the sale was for example as follows: Sales price – R1 500 000 Deposit – R100 000 (Non-refundable) Balance = R1 400 000 (Bank guarantee to be delivered within 60 days). The purchaser did not deliver the balance within 60 days although the parties agreed to an amendment to the contract where the purchaser continued to pay R100 000 per month up to year end. The balance was still not delivered via a guarantee, and the amendments to the contract resulted at year end which reads as follows: Deposit – R500 000 (Paid to date – Non-refundable) Balance – R1000 000 (Bank guarantee to be delivered within 60 days) Please advise whether the total of the non-refundable deposits received to date of R500k would be considered taxable in the hands of the seller? Assuming the purchase price of the property was R1 000 000 would there be any provision similar to Section 24C (income received in advance) one could provide for until the purchaser delivered the guarantee after year end? Or will the full amount of the non-refundable deposit be taxable at year end? Please advise.



For an amount to form part of "gross income” as defined in s 1 of the Income Tax Act, it had to be "received by or accrued to or in favour of any resident” hence, there has to be an unconditional entitlement to the amount.

In Geldenhuys v CIR 1974 (3) SA 256 (C); 14 SATC 419 it was held that the words ‘received by…the taxpayer’ in the definition of gross income means ‘received by the taxpayer on his own behalf for his own benefit’. 

Your client will only have to account for the money as "gross income” if, and contractually, the purchaser has forfeited the deposit together with the proceeds paid thus far on the sale of the property, and your client may use the money for his own behalf or for his own benefit.


In the event that the purchaser forfeits the amounts already paid, will your client have to consider possible Value Added Tax implications?

Value added tax ("VAT”) is not a tax that is levied on revenue or receipts. For VAT to be levied, there must be a supply of goods or services by a vendor (section 7(1)(a) of the Value Added Tax Act, No 89 of 1991 ("the VAT Act”) refers). If there is such a supply, then the VAT is payable on the consideration received by the vendor for the supply made. The definition of "consideration” in section 1 of the VAT Act further excludes a deposit, unless the supplier applies the deposit as consideration for the supply, or if the deposit is forfeited.

Case Law - Commissioner of Taxation v Reliance Carpet Co (Pty) Ltd. 

In this case the taxpayer, Reliance Carpet, entered into a contract for the sale of a commercial property which required a deposit of 10% to be payable. The purchaser paid the deposit but failed to pay the balance of the purchase price by the settlement date. The purchaser failed to remedy its default and the deposit was forfeited as a result. Reliance Carpet was assessed for VAT on the forfeited deposit.

The High Court considered the sale agreement in detail and found that there was a supply because the vendor entered into various obligations when the contract was concluded, such as the obligation to maintain the property in its present condition, to pay all rates, taxes, assessments, fire insurance premiums and other outgoings in respect of the land and to hold the existing policy of fire insurance for itself and in trust for the purchaser to the extent of their respective interests. The vendor also granted rights to the purchaser in relation to the land, and the High Court held that the carrying out of the obligations and the granting of rights in terms of the agreement comprised a taxable supply for which the forfeited deposit was received as consideration.

2. Permanent residence in South Africa


I have a client who is permanently resident in South Africa but only earns income in Dubai so he will be taxed on his Dubai income in RSA. He contributes to a medical aid in the UK. Can he claim the medical aid contributions (convert the contributions from Pound to Rand at the average exchange rate) as a deduction in his tax return? I cannot find any publications or sections of the Income tax act that allows or disallows foreign medical aid contributions. Please can you advise if my client can claim the medical contributions in his 2013 tax return?


S 18(1)(a)(ii) of the Income Tax Act allows as a deduction contributions to any fund which is registered under any similar provisions as the Medical Schemes Act, 1998 Act No. 131 of 1998).

S 18(1)(c) of the Income Tax Act allows as a deduction any medicines supplied or services rendered outside the Republic which are similar to the expenditure in respect of which a deduction may be made in terms of paragraph (b) of s 18(1).


The expenditure may be included in your client’s tax return provided that they have met the requirements of the Act. The expenses are subject to the limitation of expenses formulas as can be found in the Act (same as South African expenditure).


Michael G. White says...
Posted Wednesday, 26 June 2013
Vat & Income Tax implications pertaining to fixed property.Income Tax: According to case law unless a deposit is received by a taxpayer in trust ,that deposit has been received by him for his own benefit. Hence I believe he is obliged to disclose deposit in the tax year that he received the deposit. Refer Brookes Lemos V CIR 14 SATC 295(A) & Greases SA Ltd v CIR 17 SATC 358(A).Also see Notes on above 2 cases at pages 126 & 128 of “Income Tax In South Africa Cases & Materials “ RC Williams, 3rd edition , Lexis Nexis.
Michael G. White says...
Posted Wednesday, 26 June 2013
Although client is a permanent South African resident ,he ought to be aware that his non South African earnings might be exempt from South African normal tax in terms of Section 10(1)(o)(ii), subject to certain criteria being met(eg absent from South Africa for more than 183 days during any (my underlining)period of 12 months. Also refer SARS I/Note 16.Should the tax rates in Dubai be significantly lower than that of South Africa,it may well be to his advantage to consider the exemption under S10(1)(o)(ii).



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